You open your 1099-B and scroll to the section labeled "Short-term sales — cost basis NOT reported to the IRS" or "Long-term sales — Box E". The proceeds column has numbers in it. The cost basis column is blank. Or zero. Or says "N/A".
That's a noncovered security. The IRS doesn't require your broker to report the cost basis, and your broker took them up on that. You still owe tax — but how much depends on what you paid for the investment, and nobody's doing that math for you.
If you leave those cells blank when you file, TurboTax will treat the cost basis as zero and calculate a capital gain equal to the entire proceeds. That's almost never correct. Here's how to figure out your actual basis and enter it the right way.
Covered vs Noncovered — The Cutoff Dates
In 2008, Congress passed legislation requiring brokers to track and report cost basis on customer trades. It rolled out in phases:
- Stocks purchased after January 1, 2011 — covered
- Mutual fund and DRIP shares purchased after January 1, 2012 — covered
- Bonds, options, and less-common securities purchased after January 1, 2014 — covered
Anything bought before its relevant cutoff date is noncovered. The broker may or may not have your original cost basis in their system — either way, they're not required to report it to the IRS, and on the 1099-B it appears in the noncovered section.
The practical implication: if you've owned shares in a mutual fund or a DRIP account for more than a decade, you likely have a mix of covered and noncovered lots. A single sale can span both, and the 1099-B will split it into two rows.
What Box B and Box E on Form 8949 Mean
Form 8949 has six boxes for classifying transactions:
| Box | Holding | Basis reported to IRS? |
|---|---|---|
| A | Short-term | Yes |
| B | Short-term | No (noncovered) |
| C | Short-term | N/A (no 1099-B) |
| D | Long-term | Yes |
| E | Long-term | No (noncovered) |
| F | Long-term | N/A (no 1099-B) |
Noncovered transactions land in Box B or Box E. When you enter the sale in TurboTax, it asks which box it belongs in — pick the right one based on the section of your 1099-B where the transaction appears.
For a deeper dive on how 1099-B data flows to Form 8949 and Schedule D, see our Form 8949 complete guide.
Finding the Original Cost Basis
Four places to look:
1. Old brokerage statements. If you have the monthly statement from the month you bought the position, the purchase price is right there. Log into your broker's document archive; most keep statements for 7-10 years.
2. Broker historical cost basis tools. Fidelity, Vanguard, Schwab, and others have "Cost Basis" pages inside the account that show tracked basis even for noncovered lots. The broker knows your basis — they just didn't report it to the IRS because they weren't required to.
3. Transfer records. If you moved shares from one broker to another, the old broker should have sent a transfer cost basis statement. This is the most reliable source for transferred noncovered lots.
4. Stock splits and dividend reinvestments. Don't forget to adjust for corporate actions. A 2-for-1 split halves your per-share basis but doubles your share count; the total basis stays the same. DRIP reinvestments add to basis — the reinvested dividend amount becomes basis for the new shares.
If none of those yield a clean number, reconstruct as best you can and keep documentation. The IRS accepts "reasonable" basis reconstruction — they don't expect perfection for positions held 15+ years.
Gifted or Inherited Stock — Special Rules
Noncovered doesn't automatically mean "you paid for it". Two common scenarios need different basis rules:
Gifted stock: Your basis is the donor's basis (called carryover basis), not the value on the day you received it. If your dad gave you Apple stock he bought in 1998 for $500, your basis is $500, not whatever Apple was worth the day he transferred it to you. This can create huge capital gains on sale — which is the entire point of gifting appreciated stock (the gain shifts to you, potentially at a lower bracket).
Inherited stock: Your basis is the fair market value on the date of the decedent's death (stepped-up basis). If your dad bought Apple in 1998 for $500 and it was worth $45,000 when he died, your basis is $45,000. If you sell for $50,000, your gain is only $5,000.
The 1099-B can't know whether a noncovered security was gifted or inherited — the broker just issued it to you. You need to apply the right basis rule manually when you enter the sale.
Entering Basis in TurboTax
- Enter the transaction as usual — description, dates, proceeds, holding period
- In the "Sales section" dropdown, select "Short-term basis not reported to IRS (Box B)" or "Long-term basis not reported to IRS (Box E)"
- In the cost basis field, enter the basis you determined yourself
- Don't check the "cost basis is incorrect" box — you're not adjusting a reported basis, you're supplying one where none was reported
- Date acquired: the actual purchase date, or "Various" if it spans multiple lots
TurboTax will place the transaction in Form 8949 Box B or E automatically.
What Happens If You Leave It Blank
If you enter proceeds and leave cost basis blank or $0, TurboTax treats the entire proceeds as a capital gain. On a sale of $30,000 worth of shares you originally bought for $22,000, that's an $8,000 overstatement of gain — roughly $1,600 in unnecessary federal tax at a 20% long-term rate, more at higher brackets.
Do not leave it blank. If you genuinely don't know the basis and can't reconstruct it, make a reasonable estimate based on the average price of the security during the year you bought it, and document how you arrived at the number. The IRS's position in audits has been that a good-faith reconstruction is far better than reporting $0.
FAQ
Can I ask my broker to just tell me the noncovered basis?
Yes — most brokers can generate a noncovered cost basis report on request. Call customer service or check the Cost Basis section of your account online. They track it internally even when they don't report it to the IRS.
What if I inherited the shares decades ago?
Use the stepped-up basis from the date of death. If you don't have the value from then, estate records or an estate tax return (if one was filed) will have it. If the estate was below the filing threshold and no return exists, you can use historical price lookups.
Does this apply to mutual funds too?
Yes. Mutual funds became covered on January 1, 2012. Shares bought before then are noncovered. Because mutual fund holdings often span decades with DRIP reinvestments, the typical mutual fund sale has a complex mix of covered and noncovered lots.
Do I need to list every noncovered transaction individually?
You can use summary totals for Box B and Box E if you have many transactions, but unlike Box A/D, the IRS usually wants you to attach a detailed statement via Form 8453 for noncovered summaries. See our guide on 1099-B summary totals.
What if the basis I calculate is higher than the proceeds?
Then it's a capital loss, and TurboTax will treat it correctly — the loss flows to Schedule D and offsets other capital gains, with up to $3,000/year of net loss usable against ordinary income.
Bottom Line
Noncovered securities have a missing cost basis on your 1099-B, but the burden to find it is on you — not the broker, not the IRS. Check your historical statements, ask your broker for their internal records, apply the right rule for gifted or inherited stock, and never leave the basis blank. The five minutes spent reconstructing basis can save thousands in over-taxation on the sale.
Noncovered lots spanning multiple years? Convert your 1099-B PDF free — export every transaction to CSV including the noncovered section, then apply your reconstructed basis cleanly in TurboTax or TaxAct. Handles Box B and Box E separately so you can spot-check each lot.